Raising capital for a business venture is essential in ensuring its growth. That’s why most entrepreneurs take the task of fundraising very seriously. However, just like any other endeavor, there are wrong things entrepreneurs may do while fundraising. This article explores some of the wrong moves you should avoid when raising capital for your venture.
Not Notifying Your Existing Investors of Your Fundraising
The success or failure of a fundraising round depends predominantly on the network of existing investors you have. Yet, many entrepreneurs often fail to give their existing investors an advance notice of their fundraising round. This oversight can have a negative impact because existing investors might feel disgruntled that they didn’t get the first right of refusal.
Failing to Establish Goals for Your Fundraising
One of the most frequently encountered mistakes entrepreneurs make while fundraising is failing to establish goals beforehand either because of a lack of time or a lack of knowledge. Without predetermined goals, entrepreneurs tend to enter talks without any clear objectives and targets, which can reduce their chances of making a desirable outcome.
Not Doing Your Homework
Before you start talking to potential funders, it is essential that you do good homework to identify the best sources of capital for your venture. There are, of course, individual angel investors and venture capitalists but, depending on the type of business, the best sources of capital could be the government, angel groups, banks or alternative lending organizations.
Providing Too Much Information
Another wrong move to avoid when fundraising is providing too much information to your potential investors. Not all of your business strategies and plans need to be communicated at the early stages of the process. This can put off your potential investors and make them think that you are not trustworthy and secretive.
Meddling With Your Contract Negotiations
Negotiating the terms of a fundraising contract is not easy and, to make matters worse, some entrepreneurs make even more difficult for themselves by trying to bring about changes that may not work in their favor.
Though you might think you are in a position to negotiate with your potential financiers, it’s best to avoid silly moves and meddle with the negotiations for contract terms. These are likely to be beneficial for both the entrepreneur and the potential investor.
Not Making the Most of Technology
In this day and age, technology offers a range of fundraising options that entrepreneurs may take advantage of. Yet, many still fail to use these options to their advantage. Crowdfunding, angel investors and venture capitalists are all increasingly using technology to identify these early-stage and growth-stage companies.
Failing to Ask for Referrals
The success of a fundraising campaign largely depends on the referrals and guidance you can get from your family, friends and professional network. However, many entrepreneurs fail to ask for referrals, assuming that the process is not competitive and no one needs any help.
Not Being Prepared for Intensive Due Diligence
Another wrong move commonly made by entrepreneurs during fundraising is failing to prepare for intensive due diligence. Potential investors want to get as much information about a company’s financials and business model as possible.
These checks are often more sophisticated than what entrepreneurs usually expect, and failure to be adequately prepared causes delays in the process and even potential termination of the agreement.
Rushing the Fundraising Campaign
Raising capital can take a lot of time and you may run into unexpected delays. That said, some entrepreneurs tend to rush through their fundraising campaign to get the money that they need in the shortest amount of time, adding to the pressure and reducing their chances of success.
Failing to Make Good Use of Your Potential Investors
Finally, some entrepreneurs also fail to make good use of the potential investors they have identified. It is essential to view venture capitalists and angel investors not only as financiers, but also experienced and influential mentors and advisors in the fields they invest in.
If you don’t take advantage of their knowledge and process the feedback they provide, it can have an adverse impact on your fundraising campaign, leading to its failure.
Raising capital for your business venture is a complicated task and there are many pitfalls you should try to avoid along the way. As outlined in this article, some of the most wrong moves you can make while fundraising include notifying of your investors about your process, not establishing goals, not doing your homework, providing too much information, meddling with contract negotiations, not making the most of technology, failing to ask for referrals, not getting prepared for intensive due diligence, rushing the campaign, and failing to make good use of potential investors. Being aware of these wrong moves can go a long way in helping you achieve your fundraising goals.
